Public Citizen Urges Government to Strip HSBC of Depository Insurance and Right to Do Business

Regulators should strip HSBC–the banking goliath that admitted extensive criminal wrongdoing –of its federal depository insurance and right to do business, Public Citizen today urged in letters to two government bodies.

The public interest organization asked the Federal Deposit Insurance Corporation (FDIC) to terminate HSBC’s depository insurance in light of the bank’s admission to criminal violations of federal anti-money laundering laws.

Separately, Public Citizen requested that the Maryland attorney general seek the forfeiture of HSBC’s charter–its grant of authority to do business as a U.S. corporation–because of its admitted illegal conduct.

Finally, Public Citizen submitted FOIA requests to the U.S. Department of the Treasury, the Department of Justice (DOJ) and the Office of the Comptroller of the Currency (OCC) seeking all records that pertain to the U.S. Department of Justice’s decision not to criminally prosecute HSBC.

On December 11, 2012, the DOJ entered into a deferred prosecution agreement with HSBC. The company agreed to pay $1.9 billion in fines for anti-money laundering and sanctions violations arising from the bank’s transfer of hundreds of millions of dollars on behalf of terrorists and drug cartels. The $1.9 billion settlement amounted to a mere 12 percent of the company’s reported $16 billion in profit in 2011.

Reports indicate that the DOJ declined to criminally prosecute HSBC because of fears that the prosecution of such a systemically significant bank would adversely impact the global economy. In other words, the government appears to have decided that there are some banks that, by virtue of their excessive size and complexity, are afforded preferential treatment under the law. In this case, HSBC was effectively granted immunity from prosecution.

“Such a ‘too big to jail’ policy is indefensible,” said Robert Weissman, president of Public Citizen. “It offends any reasonable sense of equal justice under the law. Moreover, the minimal fine will reinforce Wall Street’s culture of corruption, providing no deterrent for future wrongdoing.”

To confront this judicial policy miscarriage, Public Citizen is taking steps to seek further accountability for HSBC’s wrongdoing and more information about the government’s decision not to criminally prosecute the bank.

These steps include:

- A request to the FDIC to initiate proceedings to terminate HSBC’s deposit insurance for engaging in unsound practices and the violation of applicable laws under Section 8 of the Federal Deposit Insurance Act.

- A request to the Maryland Attorney General to forfeit the state charter of HSBC, where the London-based firm’s American holding company is incorporated, because the company has engaged in organized crime under § 1-405 in the Maryland Statute on Corporations and Associations.

- FOIA requests to the Department of the Treasury, the DOJ and the OCC seeking all records that pertain to the DOJ’s decision not to criminally prosecute HSBC because of concerns that such action could cause financial or economic instability. Public Citizen believes that a full explanation of what considerations drove the DOJ’s decision will enable the public to better appreciate whether prosecutors are making appropriate charging decisions, and if not, whether new legislation should be introduced.

“The actions we’re asking for would not only help deter HSBC from criminal action in the future, but they would send a message to other corporate criminals that they can no longer expect to write off their punishment for criminal activity as a business expense,” said Bartlett Naylor, financial policy advocate for Public Citizen. “They should expect to be held accountable to the full extent of the law.”